Switzerland & EU heading for Brexit-style trade clash

Medical technology companies in Switzerland will be no longer allowed to export duty-free to the EU after negotiations between Brussels and Bern over a long-anticipated trade agreement broke down.

A summit last month failed to resolve differences over a pact that is widely unpopular in Switzerland. The treaty focused on five key areas: free movement of people, land transport, civil aviation, processed farm goods and mutual recognition of industrial standards.

Switzerland insisted on more concessions on labour rules, state aid, and citizens' rights, with one political source telling Reuters he expected the cabinet to decide - after years of foot-dragging - to cancel further negotiations.

Trade between the two is worth €227 billion, with medical technology companies being the latest sector to suffer the consequences of the deterioration in relations. Switzerland is now facing increased barriers to the single market in a dispute that has drawn parallels with Brexit. 

"With Brexit, the EU has had to think harder about what it means to be in the single market and what rights and privileges come with that," said Nicolas Veron, a fellow at the Brussels-based think tank Bruegel, in an interview with Bloomberg.

Read more: UK exports to EU drop as Brexit disrupts trade

Earlier this month, while speaking at a panel hosted by the Jean Monnet Foundation for Europe, Jacques de Watteville, the EU's former chief negotiator, said there had been a "hardening of tone in the air".

Since 1972, the two sides have managed their trade relationship through a series of more than 100 bilateral agreements which were fleshed out after Swiss voters rejected becoming an EU member state in 1992.

These deals will remain in effect but will erode over time. The latest of these deals to run its course was an agreement on cross-border trade in medical technology products, which came to an end this week in the absence of a treaty.

One of the key agreements between Bern and Brussels is the Mutual Recognition Agreement (MRA), which essentially allows single market access.

"The mutual recognition and related trade facilitating effects for medical devices between the EU and Switzerland ceased to apply on 26 May. This is linked to the new Medical Devices Regulation entering into force in the EU on the same date," said the European Commission in a press release, adding: "This is fundamentally a level playing field issue."

Switzerland's medical technology sector covers 1,400 companies, employs more than 60,000 people and accounts for around 3% of the country's GDP. Despite government attempts to guarantee the continued supply of EU goods to the Alpine nation, companies like Swiss Medtech have estimated the costs of product development could rise by as much as 30% due to trade barriers.

"We hope that the last word has not yet been spoken," said Swiss Medtech President Beat Vonlanthen. "I expect politicians to put the healthcare of their own people above tactical negotiating interests."

Read more: Swiss-EU treaty deal needs a "miracle", says Swiss minister

The Commission also said that it had proposed "a limited modification of the medical devices chapter of the MRA providing for a transitional validity period... Despite consistent efforts and EU readiness to conclude such a transitional arrangement, the proposed modification was not agreed ahead of 26 May 2021.

"Until a potential agreement on the proposed modification to the MRA is reached, the trade facilitating effects of the MRA for medical devices... cease to apply."

Switzerland will now be downgraded to "third country" status, which means they now need to place a representative in the bloc and meet EU product labelling requirements, along with a host of other bureaucratic hurdles.

According to the Swiss Federal Customs Administration, Switzerland exports more to the European Union than the US and China combined, with one in three Swiss francs coming from trade with the bloc.

A number of sectors are at risk of being hurt by the ongoing dispute including the energy market, various industries and the country's lucrative banking sector.

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